CH 15 -Change in Profit Sharing Ratio

(15) Change in Profit Sharing Ratio

 

Treatment of Investment Fluctuation Reserve:

 

This reserve is created out of firm’s profit of meet the fall in the market value of investment. This reserve is treated as follows:

 

Illustration:

 

P, Q and R sharing profit of loss in the ratio 3:2:1. How decided to share future profit equally. Following is the balance sheet:

 

Liabilities	र	Assets	र
Investment Fluctuation Reserve (IFR)	30,000	Investment (at cost)	5,00,000

 

Show the Accounting treatment:

(i) If there is no information

(ii) If the market value of the Investment is र 5, 00,000

(iii) If the market value of the Investment is र 4, 88,000

(iv) If the market value of the Investment is र 4, 4, 6000

(v) If the market value of the Investment is र 5, 0, 6000

 

 

Date	Particular	L.F.	Dr. र	Cr. र
(i)           (ii)                 (iii)                 (iv) (a)         (b)             (v) (a)           (b)       (c)	Investment Fluctuation Reserve A/C                         Dr. To P’s Cap. A/C To Q’s Cap. A/C To R’s Cap. A/C (Excess IFR to Cap. A/C in old ratio)		30, 000           30,000                 30,000                 30,000 24, 000       12,000 8,000 4, 000         30,000           6,000       6,000	15, 000 10, 000 5, 000       15, 000 10, 000 5, 000             12,000   9, 000 6, 000 3,000         54, 000           24, 000         15, 000 10, 000 5, 000       6,000       3,000 2,000 1,000
	Investment Fluctuation Reserve A/C                         Dr. To P’s Cap. A/C To Q’s Cap. A/C To R’s Cap. A/C (Excess of IFR transfer to Cap. A/C in old ratio)
	Investment Fluctuation Reserve A/C                         Dr. To Investment (5, 00, 000-18, 8000 To P’s Cap. A/C To Q’s Cap. A/C To R’s Cap. A/C (Excess IFR to Cap. A/C in old ratio)
	IFR A/C                    Dr. Revaluation A/c    Dr. To Investment (Fall is value of Investment charged to Revaluation A/C
	P’s Cap. A/C          Dr. Q’s Cap. A/C         Dr. R’s Cap. A/C         Dr. To Revaluation A/C (Fall is value loss transfer Cap. A/C in old ratio)
	IFR A/C                    Dr. To P’s Cap. A/C To Q’s Cap. A/C To R’s Cap. A/C (Excess of IFR transfer to Cap. A/C in old ratio)
	Investment A/C     Dr. To Revaluation A/C (Value of Investment brought up) Revaluation A/C    Dr. To P’s Cap. A/C To Q’s Cap. A/C To R’s Cap. A/C Profit on revaluation dismasted in old ratio)